Middle East conflict raises new surcharge fears

Figure of the week

99.4% The Trump administration’s new Section 301 tariffs, cover an estimated 99.4% of goods imported into the US, though there are numerous product exceptions such as oil, gas, fertilizer and some food items.

Quote of the week

“The 301s allow a permanent tariff without going to Congress to settle the dispute. That’s what all of this is about. The president doesn’t want to knock on the front door of Congress, so he’s trying every side door and every unlatched window to get in.” Barry Appleton, a law professor and co-director of New York Law School’s Center for International Law, explains President Donald Trump’s tariff policy in pithy fashion.

Shippers resigned over latest tariff shift

For some time now, shippers have been dreading the possibility of a new round of tariff increases in late July . At the end of last week the Trump administration set out, as expected, its new tariff policies under Section 301 of the Trade Act of 1974. Yet the most newsworthy aspect of these new tariffs was not so much the reaction to them as the lack of reaction. Yes, there were irate comments from trading partners such as Australia. China, South Korea, Japan, and New Zealand were other countries to express loud disapproval. But in general, the new Section 301 tariffs of either 10% or 12.5% replaced the previous 10% Section 122 tariffs without significant drama. USTR Jamieson Greer had spent the past few months investigating key US trading partners for potential unfair practices. Many analysts considered it a foregone conclusion that Greer would find justification for a new round of tariffs. Indeed, Greer’s conclusion was that effectively all of the US’s major trading partners were falling behind the US in combating forced labor in supply chains, justifying 10% or 12.5% tariffs on around 60 trading partners. According to the administration trading partners that received 10% tariffs such as the UK were those with more developed policies in this area. Others, such as Australia, New Zealand and Japan attracted the higher 12.5% tariffs. Leaving aside the reaction from those trading partners, what was telling was the relative lack of protest from business groups in the US, at least at the time of writing. While many continue to oppose the Trump administration’s tariffs on principle, there were few irate public statements of the kind that had greeted events such as the Liberation Day announcements. True, within two hours of the new tariffs being announced, two small businesses sued Trump and his administration. They argued that the Section 301 Act had been fundamentally misused. Opinion was split among legal experts as to whether the lawsuit would be successful. Some, such as Peter Harrell of Georgetown University Law Center’s Institute of International Economic Law, said Trump’s use of Section 301 would be struck down in court “for sure.” Many others believed the courts were likely to rule in favor of the administration. Shippers are unlikely to be as invested in the court case as they were in the Supreme Court’s IEEPA ruling. Many will probably decide that in one way or another tariffs are here to stay.

Rising fuel costs pose new challenge for air freight

Air cargo shippers are finally seeing lower rates, but any budget savings risk being wiped out by rising fuel costs. The Baltic Air Freight Index was 17% higher on July 20 than a year ago. However, overall rates had fallen 3.1% in the previous week. Trans-Pacific services had seen the biggest declines. Hong Kong outbound rates were down 6.3% week on week, while Shanghai saw a 1.1% fall. Overall, China-to-US services fell 3.9%, but the steepest drop was seen from Vietnam to the US, where rates dropped 13.3%. Meanwhile, it was inevitable that the higher oil prices seen since talks between the US and Iran broke down would start to feed into rates sooner or later. It was no surprise then, that Cathay Pacific announced higher cargo fuel surcharges from August 1. According to the IATA Jet Fuel Monitor, the average global price of jet fuel rose 17.6% week on week. At the time of writing, hopes that the US and Iran might restart talks appeared to have been shattered amid reports of a fresh Iranian ballistic missile attack on US forces. Shippers should expect continued volatility, as events in the Middle East could lead to considerable swings in fuel prices . However, any potential redeployment of capacity is, at this point, more likely to benefit US shippers, as airlines withdraw aircraft from routes serving the Middle East and deploy them elsewhere.

Middle East conflict raises new surcharge fears

Shippers have been left anxiously watching events in the Middle East as ocean carriers promise to roll out another round of emergency fuel surcharges in August . Renewed hostilities between the US and Iran sent oil prices climbing above $90 per barrel. Inevitably, those higher prices feed into the price of bunker fuel. Although bunker fuel prices had begun to ease in July following the start of the new round of talks, they began rising rapidly last week. One week ago, they were up 24% from the first week of July. This led carriers including CMA CGM, ONE, Maersk, MSC, and Hapag-Lloyd to announce new emergency fuel surcharges. Since then, however, there appears to have been a fresh easing of hostilities and the possibility of a new round of peace talks. Initially, this took the form of the US carrying out no new airstrikes over two nights. The gesture was soon matched by Iran, which said it would cease military action as long as the US did the same. US President Donald Trump said: “They are talking to us right now. They’d love to make a deal. I don’t think they’re ready to, but I’m willing to listen.” At the time of writing, however, there were early reports that a new round of new Iranian missile strikes was likely to put paid to any such talk. For shippers, the prospect of new fuel surcharges comes as unwelcome news after weeks of high rates. The early peak season appears to be ebbing slightly, partly due to falling demand and partly due to new capacity coming on stream. Space on the Asia-to-US East Coast trade remains tight because of restrictions in the Panama Canal. However events in the Middle East are threatening to introduce new volatility into ocean freight .

🤔 Did you know ?

Two weeks ago, The Merchant wrote about the impact of Typhoon Bavi on port operations in Shanghai and Ningbo. While we predicted weeks of congestion, if anything, the disruption has exceeded predictions. The queues of vessels outside Shanghai and Ningbo continue to increase. Some vessels are having to wait several days to secure a berth. The impact is expected to last for at least another week, if not longer.

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